Assessing the Fiscal Impact of Trade Liberalization in Laos: A General Equilibrium Approach

Sithanonxay Suvannaphakdy (oud_sdy@yahoo.com) and Toshihisa Toyoda

No 34, GSICS Working Paper Series from Graduate School of International Cooperation Studies, Kobe University

Abstract: Trade liberalization entails the transition from trade taxes to domestic taxes. Certain structural characteristics such as narrow tax base and significant proportion of subsistence sectors, however, constrain such transition and hence reducing public revenues in developing countries. This paper contributes to this debate by assessing the impact of trade liberalisation on domestic tax revenue in Laos. We find that Laos has been able to recover revenue loss from tariff reduction through the introduction of value-added tax (VAT). VAT generated LAK 5,510 billion or 30% of tax revenue in 2017, which was about twice higher than the ratio of tariff revenue to tax revenue in 2000. Our simulation results of tariff liberalization using a computable general equilibrium (CGE) model also reveals that further reduction in tariff rate will be associated with lower indirect tax rate. In particular, the 20% tariff reduction will increase private consumption by 1.14%, but will decrease the effective indirect tax rate from 6.2% to 5.2% and reduce tax revenue by 11%. The worsening tax revenue loss reflects the non-optimal indirect tax rate, which needs to be reduced by 11%. The key policy implication is that any policy designed for raising tax revenue should aim at improving tax collection system and broadening tax base rather raising indirect tax rate.

Keywords: Trade liberalization; Fiscal impacts; Domestic tax revenue; Laos; CGE model (search for similar items in EconPapers)
Pages: 22 pages
Date: 2019-09
New Economics Papers: this item is included in nep-cmp, nep-int and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://da.lib.kobe-u.ac.jp/da/kernel/81011876/ (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kcs:wpaper:34

Access Statistics for this paper

More papers in GSICS Working Paper Series from Graduate School of International Cooperation Studies, Kobe University Contact information at EDIRC.
Bibliographic data for series maintained by GSICS Library (gsics-library@office.kobe-u.ac.jp).